Stories of some majority black-owned group or a black individual buying a bankable business which is a going concern have a feel-good ring to them. They signify a bold step taken in the journey of a thousand miles towards the Promised Land of economic emancipation for a previously disadvantaged individual. Some have thrived in their new ventures, gaining big market shares and empowering other black-owned businesses through enterprise development initiatives in the process. However, in our enthusiasm to hear about a feel-good black success, the flipside of the lot who perish in the ruthless wilderness of sustaining a business may be deliberately ignored.
Sipho*, who bought a logistics company as a going concern, which has since gone under, tells Transform SA Online that buying an existing business is not like winning the grand prize in a lotto as some people would be inclined to believe. “You may be envisioning the finishing line, without considering what it takes to get there. You see yourself at the end of the successful financial year, cashing on dividends -buying property and spoiling yourself with a Porsche, holidays to Mauritius with the Missus…All trappings of wealth,” he reveals.
The business Sipho* had bought was previously owned and managed by family whose forebears had migrated from Germany before the Anglo-Boer War. It had outlasted a century, sustained by an intricate network of friends and extended family who would patronise it with long-term contracts based as much on kinship as it was on sound business decisions.
“The business was very attractive. Who can turn down a company with a 100 year old pedigree that has ridden over economic storms and grown against all odds? No wonder, I secured finance at a drop of a hat,” Sipho* recounts, stressing that he had ensured the previous owners’ winning ethos were retained, and only refine where necessary. “I did not want to tamper with a winning formular. Why would I?”
Sadly, despite Sipho’s best efforts, with the change of hands, the solid networks previous owners had been gradually dismembered. One by one clients sought alternative service providers.
Worse still, with time, the logistics business had become somewhat overtraded, with small companies seeing easy pickings, a quick buck. What’s more, technology redefined the way logistics business was conducted which his under resourced business could not keep up with.
Perhaps, forward thinking, previous owners foresaw this and, were eager to sell off the business to any willing buyer.
Meanwhile, things started to go bad, Sipho* could no longer manage to service monthly loan repayments to a bluechip financial institution, could not pay main suppliers and salaries for 200 plus employees.
In a last throw of the dice, desperately, he tried bidding for government tenders which grant preferential procurement terms to black-owned businesses like his. Unfortunately, he could not make the cut in is a space where ‘tenderpreneurship’ is rampant.
Ultimately, it was inevitable the business would fold at some point. In no time, like vultures, liquidators would encircle the businesses assets, salvaging whatever they considered valuable from the carcass of the dead business.
With the benefit of hindsight, wiser, Sipho*, who has bounced back from the collapse of his maiden business experience, acknowledges he could have done things better. “I had assumed I was entitled to having clients; that clients would be always be there forever as my previous owners did. I had overlooked the fact that their clientele was drawn from their own circles, an impenetrable network built over the years that goes beyond business. “
“Go out and look for business. Business opportunities won’t come to you. If you are previously disadvantaged, it means your circles don’t swim in money, which is in itself a great disadvantage…There is no tokenism in business,” he advises, adding that one has to find out if the business can survive in a changing environment.
Sipho* has since risen to his feet, dusted himself from the fall and is now running a flourishing specialty chemicals manufacturing business. He has a priceless warning to would-be buyers of going concerns: “Beware of burning your fingers after buying a business blindly.”
For any person from a previously disadvantaged background, buying a going concern may seem to be convenient and a safe bet than the hard slog of building a business from the ground. Indeed, the going concern would have been running for years and built a reputation amongst clients for integrity and trust. This is at least for those that can afford access to finance. However, there is need for due diligence on present and future scenarios that can sustain the business. The adage “Look before you leap” is as relevant as ever.”
